You plan to buy a home for 203 thousand dollars. The bank you want to finance...

You plan to buy a home for 203 thousand dollars. The bank you want to finance the loan with suggests a 20-year mortgage at 6% APR. What would be the monthly mortgage payment? Use semiannual compounding, and provide the answer in dollars

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Expert Solution

Loan amount = $203,000

Interest rate(APR) = 6% semi-annual compounding

Calculating the APR monthly compounding from semi-annual compounding using EAR formula:-

where, r1 = Interest rate monthly compounding

m1 = no of times compounding in a year = 12

r2 = Interest rate Semi-annual compounding = 6%

m2 = no of times compounding in a year = 2

taking 12-root on both sides,

r1 = 5.92632%

- Interest rate(APR) monthly compounding is 5.92632%

Now, calculating the Monthly Mortgage Payment:-

Where, P = Loan Amount = $203,000

r = Periodic Interest rate = 5.92632%/12 = 0.49386%

n= no of periods = 20 years*12 = 240

Monthly payment = $1445.74

So, he monthly mortgage payment is $1445.74

If you need any clarification, you can ask in comments.

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jeff jeffy answered 1 year ago

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